Corporations Push Offshore Tax Breaks

By Roger Bybee

Proclaiming their goal as job creation in the US, a powerful new corporate coalition is aiming to save nearly $80 billion over the next decade in a proposed tax amnesty or repatriation holiday on $1 trillion in profits held overseas by US firms. While this tax amnesty is cloaked in the rhetoric of generating more job growth in the US, the tax amnesty promoted by WIN America would actually accelerate the flow of US capital and jobs to offshore sites, warns tax expert David Cay Johnston, editor of TaxNotes.com and author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).

The highly influential coalition includes such familiar names as Adobe, Apple, Cisco, Dell, Coca-Cola, Google Pfizer, and the US Chamber of Commerce, among dozens of others. In May, Rep. Kevin Brady (R-Texas) introduced a bill (HR 1834) to create a new repatriation holiday for corporations that bring home offshore profits.

This new amnesty bill encourages the worst kind of corporate behavior, Johnston warns. It encourages corporations to put intellectual property [brand names, patents, logos, etc] overseas while their US units will be charged for using the property, thereby severely reducing their US tax burden.

If passed as proposed, this amnesty will cost 100,000 US jobs, Johnston predicts. Once the profits are brought back into the US, corporations have no obligation to re-invest them in US jobs. They mainly want to bring the money home to buy back their own stock and raise their stock prices, explains Johnston.

The 2004 amnesty utterly failed to produce the promised benefits of increased jobs and a big gain in tax revenues, points out Johnston. Pfizer, the pharmaceutical giant, brought home $37 billion taxed at just 5.25%.

But instead of using this capital to create more jobs in the US, Pfizer started firing people, recounts Johnston. About 40,000 Pfizer jobs in the US are gone, about 35% of their workforce, since the [Create Jobs in America] Act.

If this new tax repatriation goes through, I would estimate that the US would lose another 100,000 jobs, Johnston predicts. The tax repatriation proposals fail to include any safeguards that would bind corporations to investing in the US rather than continuing their pattern of shifting more and more work to their plants and other operations overseas. While the work can be transferred to low-wage nations like China and Mexico, the corporations can maintain their practice of ascribing their profits to extremely low-tax nations like Bermuda or the Cayman Islands.

But the WIN America coalition is lobbying Congress hard for another repatriation holiday, contending that it would bring hundreds of billions back to the US for investment and generate $50 billion in tax revenue.

However, Citizens for Tax Justice argues that Congresss official revenue estimates pegged the cost of another repatriation holiday would cost $79 billion over 10 years instead of producing more revenue. Part of the federal calculation, notes CTJ, is that a second repatriation holiday would reinforce CEOs belief that they can benefit by shifting even more of their profits to offshore tax havens, feeling confident that they can continue to persuade Congress to grant them enormous tax discounts through more repatriation holidays.

Proposed new losses of federal revenues would seem to have only the remotest chance of passage with the US federal budget deficits dominating debate in Washington.

In the current environment, even conservatives like Sen. Tom Coburn (R-Okla.) are now looking for new revenue, meaning more money from taxes.

With vast budget deficits faced by the states as well as the federal government, popular pressure for higher taxes on corporations and the rich is rising, according to several recent polls. The corporate share of total US taxes is at an all-time low, at representing about 6.6% of federal revenues, down from 30% in the 1950s.

Further, public awareness of corporate tax avoidance has been heightened by widely-published reports revealing that General Electric earned $14.2 billion in profits in 2010 and paid no US corporate income taxes and actually accumulated $3.2 billion in tax credits.

GE was no exception. CTJ examined the pretax US profits, federal taxes paid and effective tax rates of 12 corporations in the Fortune 500 over the 2008-10 period. During this span, the dozen companies reported a total of $171 billion in pretax US profits. However, they not only paid no corporate income taxes, but emerged with a negative rate, with the government owing them $2.5 billion in tax credits.

Over 60% of US-based firms are estimated to avoid paying any corporate income taxes.

A key component of avoiding corporate taxes is the use of offshore tax havens where corporations maintain only a mailbox and symbolic office space.

A 2008 study by the Government Accountability Office showed that 83 of the 100 largest US companies operate subsidiaries in nations that the agency considers tax havens.

Cayman Islands [are] a suburb of Greenwich, Conn., and ought to be treated that way. It has no independent life or meaning.

Given the fact that US firms (including GE, whose CEO ironically heads President Obamas Commission on Jobs and Competitiveness) have increased their overseas employment since 2000 by 2.4 million while slashing 2.9 million jobs in America, multinational corporations are no longer widely perceived as the job creators as their Republican allies now euphemistically label them.

But the WIN America coalition should not be counted out, given the Republicans proven tenacity in fighting for lower corporate taxes and the Obama Administrations much less fervent approach in negotiating for tax justice.

WIN America also carries the prestige of some of Americas most cutting-edge entrepreneurial successes at a time of lowered confidence in the ability of what more naïve citizens regard as our corporations ability to compete. The coalition has lined up an impressive, strategically-chosen lobbying team designed to maximize their effectiveness with Democrats who might be expected to be more skeptical about the tax amnesty, as BusinessWeek reports:

The teams chief communications strategist is Anita Dunn, the Democratic media consultant who served as President Barack Obamas interim communications director during his first year in office ... The lead lobbyists are former Rep. Jim McCrery of Louisiana, who was the ranking Republican on the House Ways and Means committee, and Jeffrey A. Forbes, the former chief of staff to Senate Finance Chairman Max Baucus (D-Mont.).

Further, US CEOs and their conservative political allies have also been escalating the intensity and frequency of their claims that US corporate taxes are too high and encourage the shift of US jobs overseas. This element of the corporate campaign is designed both to build momentum for lower taxes and deflect the deep anxiety held by 86% of Americans over the offshoring of US jobs, according to an October 2010 Wall Street Journal/NBC News poll, by blaming the offshoring of jobs on the high US corporate tax rate.

While the US corporate tax of 35% is higher on paper than a number of nations, pervasive loopholes and exemptions enormously soften the impact of the official rate. In fact, the effective US corporate tax rate is actually among the lowest among the 30 advanced nations belonging to the Organization of Economic Cooperation and Development, reports Citizens for Tax Justice.

According to a 2007 study by the Bush Treasury Department, between 2000 and 2005 US corporations paid only 13.4% of their profits in corporate income taxes, well below the Organization of Economic Cooperation and Development (OECD) average of 16.1%, CTJ concludes.

However, such compelling facts have been shown to be inconsequential to Congress when confronted with the lobbying power and campaign contributions of Corporate Americas biggest names.

Roger Bybee is a publicity consultant in Milwaukee. This article originally appeared at the blog Working In These Times. Email winterbybee@gmail.com.